Who get SafeHarbor when PS contributions have different eligibility than CODA

[Guest CLeggette]

I have always explained to clients that Safe Harbor NonElective contributions must be allocated to ALL eligibles. This issue originally arose on the first of our clients to use the 3% methodology.

Recently, the "who gets it" issue has been complicated by Plan documents that now have "eligibility" requirements for Profit sharing [ like 1 yr, 1000 hrs/EOY employment].

Some practitioners have been telling their clients that only PS eligibles get it and they invoke the 1 year and 1000 hr rule.

An Example::

A Plan has immediate eligibility for CODA purposes, they apply a non safe

harbor match to those deferrals. They have a profit sharing and 3% safe

harbor NonElective contribution that is given to all employees who have 1,000

hours AND 12 months of service DURING the year. There is no "last day" rule. The

1,000 hour requirement is applied EVERY year.

Is this a legal safe harbor arrangement.

[Tom Poje]

it depends on your document. repeat, it depends on the document (or possibly the Notice depending on how things are written.)

The safe harbor goes to all eligible for deferrals, but you do not have to provide it to 'the otherwise excludable'

see Notice 2000-3 Q-10

if you use this option, you lose the free ride on top-heavy